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DSST MIS study materials
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DSST MIS: Business Decision Making: Process, Groups and Quantitative Tools

DSST MIS · Work through your exam, one topic at a time.

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Business Decision Making: Process, Groups and Quantitative Tools

Business Decision Making

This domain covers how organisations frame choices, the decision process itself, group techniques, and the quantitative tools used to compare alternatives: break-even, payback, NPV, expected monetary value and decision trees. Expect short computations and items asking which decision support system fits a situation.

Core concepts

  • Simon's model. Intelligence (find the problem), design (generate alternatives), choice (select), implementation and review. Structured decisions are routine and rule-based; semi-structured and unstructured decisions need judgement and DSS or ESS support.
  • Bounded rationality. Managers satisfice rather than optimise because information, time and cognition are limited.
  • Group techniques. Brainstorming generates options; nominal group technique ranks silently before voting; Delphi collects anonymous expert rounds until consensus emerges.
  • Economic tools. Break-even = fixed costs / (price - variable cost per unit). Payback ignores cash flows after the cutoff and the time value of money. NPV discounts all cash flows at the cost of capital; accept when NPV is positive. ROI = (gain - cost) / cost.
  • Uncertainty. Expected monetary value = sum of (probability x payoff). Decision trees are rolled back from right to left.
  • Support systems. TPS records transactions, MIS reports summaries, DSS supports semi-structured what-if analysis, ESS serves executives with external and trend data.

Worked example

Build or buy? Build: 0.6 probability of $200,000 profit and 0.4 probability of a $50,000 loss. Buy: 0.8 probability of $120,000 and 0.2 probability of $10,000.

Build EMV = 0.6(200,000) + 0.4(-50,000) = 120,000 - 20,000 = $100,000. Buy EMV = 0.8(120,000) + 0.2(10,000) = 96,000 + 2,000 = $98,000. Build wins by $2,000 in expected value, but the downside is a possible $50,000 loss, and EMV assumes risk neutrality. A risk-averse firm may still choose to buy.

Traps

  • Including sunk costs in the comparison; only future incremental cash flows count.
  • Mixing discounted and undiscounted figures in one comparison.
  • Treating EMV as the sole criterion when it ignores risk tolerance and non-financial factors.
  • Recommending a DSS for a structured, rule-based problem better served by a TPS or MIS.